Wednesday, October 12, 2011

"Are we there yet? Real estate's wild ride"

This op-ed piece was originally published on Sunday, December 20th, 2009 in the Miami Herald but has since magically vanished from their website.  I think it's a great work as people are suddenly interested in deciphering the current situation in the South Florida real estate market.

"Are we there yet?  Real estate's wild ride"


Since I think that most participants in the real estate market would rather be somewhere else right now, I'd like to compare our local housing downturn and recovery to a family road trip to Disney World on the Florida's Turnpike. Back in late 2005, we left home and after four long years on the road, we've only made it to Yeehaw Junction.

``Sure, it's the middle of nowhere,'' we tell the kids in back, ``but it's also an important crossroads.'' In two years, we'd like to be frolicking in the Magic Kingdom, but sadly, all we see right now is more signs to buy advance tickets, and an exit in not-quite-there-yet St. Cloud.

In the rear-view mirror, we can see obvious displeasure and barely contained impatience brewing in the back seat. But a quick check of the map shows that the Magic Kingdom is only a couple more years away -- and the scenery is definitely improving.

The residential real estate market is showing progress in the most urbanized locales. However, signs indicate that a second stage to the housing crash is underway. Middle class people all over are slowly being squeezed out of their homes by unending furloughs and pay cuts.


Compounding matters, there is a pent-up supply of homes of unheard-of proportions.
This means that while the housing market's fundamentals are shoring up -- appraisal valuations falling in line with sales prices and lending activity increases -- there's no double-digit percentage price improvements within sight.

Strong markets like the Miami Beach barrier island won't experience tremendous moves in any direction for the coming two years. And there is likely going to be mild price erosion in the suburban as well as high-end homes markets through the next two years.

As for condominiums, the boom is slowly transforming downtown Miami and Brickell neighborhoods into a realization of Walt Disney's original plans for EPCOT. In Walt's 1966 vision, urbanity would be constructed to the Nth degree. Everyone would work and contribute to the community -- the People Mover renders automobiles unnecessary -- and all dwellings are corporately owned, everyone is a renter. Surely, Mr. Disney never envisioned the landlords being from Colombia, Canada and Western Europe -- but the all-cash buying today will ensure that two years from now, absentee landlords will own a vast chunk of our central city district.

Recently, the FHA made a prudent move to modernize its condo finance program and expand the availability of its loans through brokerage outlets for all properties in 2010.

This should allow local buyers to jump into select projects with stable underpinnings in the district. By 2011, we should see a few of today's stalled high-rise projects become owner-occupied properties, promoting a more sustainable and local urban core.

However, FHA and Fannie Mae have both weighed in that, ``Any man that falls behind is left behind.''


Some condo projects have deferred maintenance too long, cannot afford insurance coverage. Others have less stakeholder equity than a Scott Rothstein investor. In the coming two years, many associations will take advantage of Florida's revised Condominium Termination laws to conduct mass short sales. This should rid the condo market of its weakest players, although it won't weed out all of the properties scrambling to keep their wooden eye in place.

Two years from now, the real estate market still won't be all the way to the Magic Kingdom. But assuming that we complete the return to the modern business cycle -- with limited interference from hurricanes, politics and external factors -- our journey through the swamps of this market should be reaching civilization. In some markets, there will be great fundamentals. Others will be worse in 2011 than they were even in 2008 when all bets came off the table.

No matter what happens, we'll be paying the toll for our current dilemma for years to come. But in a couple of years, signs will appear more frequently and as a market we should feel like there's some positive direction. When involuntary unemployment declines, we'll all be back in line to buy tickets, with the Magic Kingdom in sight on the horizon.